With the market teetering on a technical breakdown, you’d figure the shorts were climbing over each other to load up on new positions.

Wrong.

The latest short interest data, as reported by the exchanges, shows that the strong year-to-date performance has been too much for the short sellers to handle. In fact, short interest on the S&P 500 and its major sectors is on the decline.

The slowdown in short selling comes as a tenuous point for the market, as the S&P 500 has been bouncing between support and resistance for the past two weeks. Of course, we would regret not taking the opportunity to point out that the “crowd” is usually wrong at the ends of trends, but that’s a story for another day.

As always, though, despite an overall decline in short positions, a few companies are garnering bearish attention. And in some cases, these stocks are perched to benefit from potential short-covering rallies.

For those unfamiliar with the phenomenon, short-covering rallies typically occur when a stock that is heavily shorted continues to appreciate, forcing the short sellers to become buyers, who in turn push the stock even higher. Typically, we look for a combination of a high short interest ratio and strong technicals to identify stocks with higher odds of a pending short covering rally, like the following three companies:

US Airways

Click to Enlarge Airline stocks continue to outperform the market as travelers take to the skies for business and pleasure. Shares of US Airways (LCC) have been tracking their 50-day moving average lately; technical traders appear to be supporting the shares at this trendline.

Short sellers are holding about six days the average daily volume in their accounts, accounting for around 26% of the float. LCC faces a potential short squeeze as the declining 20-day hovers just overhead — a break higher is likely to trigger a buying spree from technical traders and short sellers scrambling to cover their positions.

Boyd Gaming

Click to EnlargeCasino stocks like Boyd Gaming (BYD) have been pulling back from their May highs, with many gaining technical support at their respective 50-day moving averages.

The shorts have increased their bets that BYD will head back toward $10, but technical support — along with an oversold signal from its RSI — argue that BYD is likely to reverse and move higher. We like the odds (pun intended) that BYD will get help from the short sellers in squeezing shares back toward $14 during the next few months.

Herbalife

Click to Enlarge Want to grab a tiger by the tail? Herbalife (HLF) appears ready to break higher again, and the breakout should be big (again) with nearly 40% of the stock’s float outstanding as short positions.

This battleground stock has garnered media attention on each move as Wall Street billionaires take opposing positions and hammer it out in the press. Right now, average Joes appear to have a chance at grabbing HLF before it takes its next break higher.

As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.